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GBP/USD Weekly Forecast: Bulls keep an eye on 1.2600 and US Nonfarm Payrolls

  • GBP/USD booked the third straight weekly gain amid ebbing banking fears.
  • Hawkish BoE Governor Bailey and the extended US Dollar decline supported GBP/USD.
  • Bullish daily technical indicators point to further gains for Cable.

The Pound Sterling continued to hold its upper hand against the United States Dollar (USD) for the third straight week, ending the month of March with strong gains. Dovish repricing of the US Federal Reserve (Fed) rate hike outlook combined with risk-recovery helped extend the US Dollar downtrend. All eyes now turn toward the high-impact economic data from the United States in the week ahead for fresh direction in the GBP/USD pair.

GBP/USD: What happened last week?

Receding fears over a potential contagion following the recent global banking crisis revived risk appetite, propelling the US equities to their highest level in a week. The positive shift in the market sentiment weighed heavily on the safe-haven demand for the US Dollar in the early part of the week, lifting GBP/USD to fresh two-month highs above 1.2350.

News that First Citizens BancShares Inc was in advanced talks to acquire Silicon Valley Bank (SVB) from the Federal Deposit Insurance Corporation (FDIC) cheered investors at the start of the week. The North Carolina-based First Citizens has around $109 billion in assets and total deposits of $89.4 billion.

Risk flows extended into Tuesday after global policymakers came out to soothe the market concerns over a potential banking sector contagion, exerting additional downward pressure on safe havens such as the US Dollar and the US government bonds. Nellie Liang, the US Treasury Department's undersecretary for domestic finance, said "if necessary, the government will employ tools to stop a banking contagion from happening again." Meanwhile, Federal Reserve Vice Chair for Supervision, Michael Barr, noted on Monday, "we are prepared to use all of our tools for any size institution as needed to keep the system safe."

Meanwhile, the Pound Sterling got a fresh boost from the hawkish comments from Bank of England (BoE) Governor Andrew Bailey. During his dual appearances in the past week, Bailey suggested that further monetary tightening would be required if signs of persistent inflationary pressure became evident. He also said there were "big strains" in the global banking sector but added that banks in Britain were resilient and able to support the economy. Additionally, the renewed Brexit optimism also supported the GBP/USD advance. On Wednesday, UK Treasury Minister, John Glen, noted that he is optimistic that the UK and European Union will soon formalize a pledge to work together on setting rules for banks and financial markets.

Heading into the second half of the week, GBP/USD's uptrend paused as the US Dollar attempted a pullback on the back of a staggering recovery in the US Treasury bond yields across the curve. The Japanese fiscal year-end flows into the USD/JPY pair and its resultant rally toward the 133.00 threshold saved the day for the US Dollar bulls and triggered a corrective move lower in the GBP/USD pair.

The US Dollar held its renewed upside on Thursday, underpinned by increased odds of a 25 basis points (bps) US Federal Reserve rate hike for May, following upbeat US Pending Home Sales data and comments by the Republican Representative Kevin Hern. Representative Hern said, "Federal Reserve Chair Jerome Powell, asked in a private meeting with US lawmakers how much further the central bank will raise interest rates this year, pointed to policymakers' latest forecasts showing they anticipate one more increase." However, the Greenback flipped into the red after the US Jobless Claims and Q4 Gross Domestic Product (GDP) disappointed and raised worries over the Federal Reserve's rate hike path. The US Treasury bond yields also tumbled alongside, with the benchmark 10-year Treasury bond yields having tested the 3.50% key support.

The GBP/USD pair regained the upside traction and jumped back above the 1.2400 barrier on Friday, reaching the highest level since January 18. The US Dollar licked its wounds amid a risk-on market profile, awaiting the Fed's preferred inflation gauge, the Core Personal Consumption Expenditures - Price Index, for fresh trading directives.

On Friday, the US Bureau of Economic Analysis reported that the Core Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred gauge of inflation, declined to 4.6% on a yearly basis in February from 4.7% in January. This reading came in slightly below the market expectation of 4.7%. Although the initial reaction caused the US Dollar to lose some strength, GBP/USD stayed in its daily range below 1.2400.

United States Nonfarm Payrolls week ahead

Following a relatively data-light week, this Holy Friday holiday-shortened week kicks off with a bang. Despite China being on a holiday, the Caixin Manufacturing PMI will be reported on Monday, which could have a significant impact on the market sentiment. The next of note for the major remains the ISM Manufacturing PMI and its sub-components from the United States. Softer US ISM Manufacturing Prices Paid index could strengthen bets for a May Federal Reserve rate hike pause, rendering negative for the US Dollar.

On Tuesday, the US docket will feature the JOLTS Job Openings and Factory Orders data amid a data-empty United Kingdom calendar. Pound Sterling traders will then look forward to the US ADP Employment Change data and the ISM Services PMI readings on Wednesday. Ahead of that, the UK Final S&P Global Services PMI will entertain Cable traders.

Thursday is calmer on the data front on both sides of the Atlantic, with the US only reporting the weekly Jobless Claims numbers. Amid a Good Friday holiday, thin liquidity will persist, triggering extreme volatility on the release of the United States labor market report.

The headline US Nonfarm Payrolls (NFP) combined with the Unemployment and Average Hourly Earnings data will hold the key in determining the next policy move by the US Federal Reserve. In February, the US economy added 311K jobs while the Unemployment Rate ticked higher to 3.6%. Average Hourly Earnings picked up by 0.2% in February.

Besides these economic releases, the speeches from the Bank of England and Federal Reserve policymakers will be closely scrutinized for revaluating the central banks' expectations. Any fresh developments surrounding the global financial market stability will also influence the higher-yielding Britsh Pound.

GBP/USD: Technical outlook

GBP/USD is set for another bullish week, as suggested by the technical setup on the daily chart.

The 14-day Relative Strength Index (RSI) holds firmer above the midline, pointing toward the overbought territory. Thus, suggesting that the bullish potential remains intact.

Adding credence to the additional upside scenario in GBP/USD, the bullish 21-Daily Moving Average (DMA) cut the flattish 50 DMA from below on a daily closing basis, confirming a Bull Cross.

Therefore, acceptance above the static resistance at 1.2450 will initiate a fresh upswing toward the 1.2600 level. Fresh buying opportunities will emerge above the latter, calling for a retest of the high from May 27 2022 at 1.2669.

On the downside, any correction could meet initial demand around the 1.2300 region, below which the March 24 low at 1.2190 will be put to test.

Further down, Pound Sterling sellers could aim for the 1.2155 area, where the 21 and 50 DMAs coincide. The 100 DMA at 1.2130 could come to the immediate rescue of buyers if the selling momentum picks up pace.

The line in the sand for Pound Sterling optimists is seen at the 1.2050 psychological level. 

GBP/USD: Forecast poll

FXStreet Forecast Poll paints a mixed picture in the near term for GBP/USD, with the one-week target sitting at 1.2350. The bearish stance remains apparent over the one-month time frame while the one-quarter outlook fails to provide a directional bias. 

Author

Dhwani Mehta

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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